Maradona Evoked in Kuroda Repelling Extra Easing Calls

Diego Maradona runs past English defender Terry Butcher, left, on his way to dribbling goalkeeper Peter Shilton, right, and scoring his second goal during the World Cup quarterfinal soccer match between Argentina and England in Mexico City on June 22, 1986. Source: AFP/Getty Images

(Corrects percentage of economists forecasting extra
easing this year in sixth paragraph of story originally
published June 11.)

June 11 (Bloomberg) -- Soccer legend Diego Maradona scored
one of his most famous goals by taking the most direct route to
his objective, wrong-footing defenders who expected him to alter
course. Now, Bank of Japan Governor Haruhiko Kuroda is doing the
same, an increasing number of economists say.

Maradona left five England players floundering as he ran in
almost a straight line for the goal in Argentina’s 1986 victory,
leading former Bank of England Governor Mervyn King to later say
that monetary policy could work in a similar way.

A growing minority of analysts -- 24 percent in a Bloomberg
News survey conducted June 3 to 6 -- say the BOJ won’t make any
addition to the stimulus announced in April last year, up from 3
percent in December. The shift shows that more are being
convinced that Kuroda won’t change tack after saying that, at
least for now, the BOJ has done what’s necessary to help drive
inflation toward a 2 percent goal.

“The Maradona theory fits perfectly well with what’s been
happening,” said Hideo Kumano, executive chief economist at
Dai-ichi Life Research Institute in Tokyo and a former central
bank official. “Inflation is developing in line with the BOJ’s
outlook, while economists have been forced to keep postponing
their bets.”

Intended Effects

All 33 economists in the Bloomberg survey forecast Kuroda
and his board will keep policy unchanged at a two-day meeting
ending June 13. Fifty-eight percent see BOJ action by the end of
this year, dropping from 75 percent last month.

Kuroda said he was aiming for 2 percent inflation in about
two years when he unveiled unprecedented easing in April 2013.

The BOJ buys the equivalent of about 70 percent of newly
issued Japanese government bonds per month from the market as
part of its stimulus that aims to boost the monetary base at a
annual pace of between 60 trillion to 70 trillion yen ($684
billion).

The BOJ’s easing is having the intended effects, with
inflation moving smoothly toward the BOJ’s target, Kuroda told
lawmakers last week in parliament.

Core consumer prices rose 3.2 percent in April from the
year-earlier month, when they registered a 0.4 percent decline.
Stripping out the effects of April’s sales-tax increase, core
inflation -- the central bank’s preferred gauge -- was at 1.5
percent, according to BOJ estimates. Inflation is likely to
reach the BOJ’s goal sometime in the middle of its projection
period through March 2017, Kuroda said last week.

Yen Climbs

The central bank forecasts core inflation will move around
1.25 percent for “some time” before accelerating on rising
price expectations and a tightening labor market.

That outlook is too upbeat, said Yasuhide Yajima, chief
economist at NLI Research Institute. The yen, whose 18 percent
decline against the dollar last year helped to stoke inflation
by boosting import costs, has gained 2.9 percent this year. The
BOJ will have to add to easing to sustain momentum, he said.

“It’s undeniable economists have been wrong, and this is
regrettable,” said Yajima. “Still, 2 percent inflation is too
ambitious a target for the BOJ to achieve.”

While a majority of economists in the survey forecast
further BOJ stimulus by the end of the year, analysts have kept
pushing back their predictions after most originally saw extra
easing as early as October last year.

Japan Center for Economic Research data indicate the BOJ
has a better track record than the average economist in
predicting price trends over the past year.

Mervyn King

In May 2013, economists forecast core consumer prices would
rise 0.3 percent in the fiscal year that ended March 31,
according to JCER. Around the same time, the BOJ projected a 0.7
percent gain -- closer to the actual 0.8 percent increase.

It wouldn’t be the first time Maradona has come up in
discourse on central banks. King in a speech in 2005 compared
his performance with the BOE’s steady policy, even as market
forecasts swung between calls for rate increases and cuts.

“The truly remarkable thing, however, is that Maradona ran
virtually in a straight line,” King said. “How can you beat
five players by running in a straight line? The answer is that
the English defenders reacted to what they expected Maradona to
do. Because they expected Maradona to move either left or right,
he was able to go straight on. Monetary policy works in a
similar way.”

The World Cup soccer kicks off this week in Brazil. The
host nation is the top choice to win the tournament, according
to a survey of 171 economists across 52 countries by Bloomberg
News published on June 10.